When will Asia get its own Netflix?

Commentary: Who will break the pay-TV bundle?

HONG KONG (MarketWatch) — Launching Netflix or a similar service across Asia sounds compelling. Take the huge population, the growing popularity of tablets and the first-rate broadband infrastructure.

Yet most of Asia has been starved of this type of service. Listening to TV executives at the Cable and Satellite’s Broadcasting Association of Asia’s annual convention last week, the advice would be: Don’t hold your breath.

Today we think nothing of choosing our music on demand or which newspapers or journalists are worth reading online. With digital content, the same should hold true on the small screen.

But for pay-TV, we still have to accept a channel bundle, which means paying for channels or programs whether of interest or not. All viewing starts with a take-it-or-leave-it bundle, before you add on individual channels.

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The model seems as old school as buying an album of music that you had never heard before. Consumers might not like it, but it has generally made for a solid business and one that the industry would like to keep in much of Asia.

So far, accessing content on demand or through video distributed by broadband provided by the likes of Hulu (partly owned by News Corp.
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the publisher of this column), Netflix
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or iTunes
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— that’s taken for granted in the U.S. — has largely been thwarted in Asia.

One small step forward came in July this year, when iTunes launched a limited movie-only service in July in some Asian markets — after nine years in the waiting (Read: iTunes’ low-key push in Asia.). This did not include China, which remains largely off-limits for foreign content.

But overall, there is a reluctance to change the existing order. One of the barriers are the pay-TV companies, which are writing the content checks and have the billing relationships with consumers. The other is content owners who prefer to sell rights country-by-country, even though today the web is world-wide.

Another sign Asia has fallen behind in the innovation stakes is the availability of ‘TV Everywhere’ services that allow you to watch content on different devices. According to data from Iredto, last year this service was available in 81% of homes in the U.S. and 40% in Europe, but just 3% in Asia.

It seems the industry likes it this way. One executive speaking last week from Sony
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explained their strategy as simply to support their existing customers or pay-TV operators.

Meanwhile, while the BBC talked up its new video-on-demand service — the global iPlayer — predictably it could not specify when it would launch in Hong Kong. They too seemed likely to partner with an existing pay-TV provider.

Such a route keep disruptive new entrants out, and instead, existing players will inch forward, seeking to minimize any potential cannibalization of their existing pay-TV revenues.

Largely missing from this discussion is the customer. This could be dangerous, warn some industry experts who say huge change lie ahead.

Saul Berman of IBM Global Business Services warned the pay-TV industry faced the end of the world as they knew it. The biggest challenge is dealing with the bundle.

This might seem alarmist, but he points to the changes witnessed in the music and newspapers industries. Granted, people are listening to more music and reading more content than ever, but the value has shifted. Now the big money is going to a different industry — such as the device makers like Apple.

As more viewing takes place on hand-held devices, smart TVs or other innovations, the traditional market may move. Will pay TV operators with their set-top boxes become the equivalent of the CD player?

One bit of advice was for Asian pay-TV operators to use web platforms themselves to expand beyond existing customers and markets. Otherwise, the global aggregators will eventually go for it, meaning the likes of Google
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YouTube etc.

Groups like dominant Malaysian pay TV operator Astro
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that listed last month in Kuala Lumpur could be worth watching. It also has a content arm through Celestial Pictures.

Netflix itself appears aware of the current difficulties to expanding in Asia and has floated the idea of teaming up with local players. There are some smaller companies in the space, such as Movideo, part of Australian listed MCM Entertainment Group
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Perhaps the best indicator that an opportunity exists in terms of unmet customer demand are signs of an upswing in piracy in the region.

Singapore has seen more people going to illegal web sites to watch content. Part of the reason for this is that the island nation has rolled out some of the fastest broadband in the world, while pirates are becoming more sophisticated. For example, illegal content can now come pre-loaded onto a simple memory stick.

Perhaps if iTunes was distributing its TV show line-up, there would be less of a market for the pirates to go after.

If the experts are right, the cozy pay-TV landscape faces an upheaval in Asia. For whoever steps up to break the pay-TV bundle, the rewards could be rich.

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